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Senior Man Filing Tax Report
Taxes

Tax Credits and Deductions for Seniors

by Guest Blogger
written by Guest Blogger

10 Ways Older Adults Can Reduce Tax Bills Starting at Age 50

Everyone wants to keep more of their hard-earned money. Luckily for seniors, many of whom are on a fixed income, there are several ways for them to save on taxes. With one out of three seniors aged 70-79 having saved less than $100,000 for retirement1, every deduction counts.

A good way to make sure you aren’t missing out on deductions is to get professional guidance. There are free tax preparation services available to seniors through the IRS and AARP. Also, those with income under $69,000 per year can file online for free using one of several tax software providers. These online providers and IRS certified volunteers can answer questions about senior tax perks like the ones below.

When You Turn 50

Larger IRA Contributions

Those over the age of 50 can contribute $1,000 more to their IRA, making the maximum contribution for the year $7,000. For a traditional IRA, these contributions act as a tax deduction. Also, once you reach 59½, you no longer have to pay an early withdrawal penalty for these funds.

401K Catch-up Contributions

Though not many take advantage of this perk, those over 50 can contribute an additional $6,500 to a 401K for 2020, bringing the total allowable contributions for the year to $26,000. Contributions to traditional 401Ks are pre-tax dollars, lowering your taxable income while helping save for retirement.

When You Turn 55

Higher HSA Contribution

Those 55 and older can contribute $1,000 more to their HSA than younger people as a “catch-up” opportunity. These contributions are tax-exempt and can be used for most medical expenses. There are no income qualifications for an HSA, though you must be enrolled in a high deductible health insurance plan6.

When You Turn 65

Higher Standard Deductions

Those over 65 get their taxable incomes lowered with a larger standard deduction. Married couples filing jointly can add $1,300 per person over 65 to their deduction. Since over 90%2 of people take the standard deduction instead of itemizing, this is a deduction almost everyone can take advantage of.

Higher Tax Filing Threshold

The minimum income that triggers a need to file a tax return at all is higher for those 65 and older. A single person over 65 would only need to file a return if his/her income was over $13,8507. For a couple of both over 65 filings jointly, the threshold is $25,700.

Tax Credit for the Elderly or Disabled

This tax credit directly lowers the tax bill by between $3,750 and $7,500 for those who qualify. People over 65 can qualify if they meet income restrictions. For someone filing on their own, income must be less than $17,500 and total non-taxable social security benefits below $5,0004, but there are different limits for different filing statuses. People who have retired on permanent disability may also qualify for the tax credit. This tax credit is difficult to qualify for and can be confusing. To see if you qualify, go to the IRS website and use their online tool3.

Property Tax Exemptions

Typically applied to those over 65, many states and cities give seniors special exemptions on the value of their homes. These exemptions vary depending on where you live, but the property needs to be your place of residence, and many places stipulate how long you need to have lived there. The exemption for those over 65 in New York, for example, is 50% of the home’s value provided your annual income is less than $29,0009.

Credits and Deductions For Everyone

Medical Expense Deductions

Most medical and dental expenses, including long term care insurance, qualify for a deduction only if the total amount of those expenses is more than 7.5% of your adjusted gross income. You need to itemize your deductions rather than taking the standard deduction for this to apply.

Business Deductions

Many older adults leave company roles to work full or part-time for themselves. When running your own business there are a lot of tax deductions to take advantage of like equipment, a home office, and travel. If you spend more than you earn which can happen when starting, you can deduct that loss from your other income sources.

Giving Tax-free to Charity

After 70½, annual withdrawals are required from traditional retirement accounts. If you do not need the money but want to avoid a penalty fee, you can donate money directly to a charity from your IRA, avoiding income tax on that withdrawal. A single person can contribute up to $100,000 tax-free each year, and you can take advantage of this even if you are taking the standard deduction8.

Shared by www.seniorliving.org

 

Sources:

  1. https://www.cnbc.com/2020/01/23/heres-how-much-americans-have-saved-for-retirement-at-different-ages.html
  2. https://www.taxpolicycenter.org/briefing-book/what-standard-deduction#:~:text=The%20Urban%2DBrookings%20Tax%20Policy,itemizing%20their%20deductions%20in%202018.
  3. https://www.irs.gov/help/ita/do-i-qualify-for-the-credit-for-the-elderly-or-disabled
  4. https://www.efile.com/tax-credit/disability-tax-credit/
  5. https://www.thebalance.com/the-key-benefits-of-health-savings-accounts-3192991
  6. https://www.irs.gov/publications/p554
  7. https://money.usnews.com/money/retirement/iras/articles/how-to-donate-to-charity-from-your-ira
  8. https://www.thebalance.com/property-tax-exemptions-for-seniors-4175584

 

 

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Tax Benefits of Caregiving of Aging Relative
Taxes

Tax Benefits of Caregiving of Aging Relative

by Jeff Dailey
written by Jeff Dailey

Caring for an elderly relative can be rewarding, but incredibly difficult – as well as expensive. However, it may be possible to recoup some of the costs through income tax savings. Tax Benefits of Caregiving of Aging Relative
There are three general approaches to tax savings on elder care costs – declaring your elderly relative as a dependent to receive an exemption, taking medical deductions that can be itemized, and claiming a dependent care credit that can be subtracted directly from the taxes you owe.
First, you must determine if your elderly relative qualifies as a dependent. Full details are listed in IRS Publication 501, “Exemptions, Standard Deductions, and Filing Information,” but the primary criteria are that they must be a relative, you must be providing over half of their support, and their gross 2016 income must be less than $4,050. Tax Benefits of Caregiving of Aging Relative
The definition of relatives includes stepparents and in-laws. They do not have to live with you to meet the requirement as a dependent, but deductions change if they are in a long-term care facility or nursing home.
To calculate support levels and income requirements, you must consider income sources from your elderly relative such as dividends from investments, although Social Security income is excluded. If they live with you, you must consider percentages of your mortgage, utilities, transportation, and other household expenses when calculating your economic support. Tax Benefits of Caregiving of Aging Relative

If you determine that your relative can be claimed as a dependent, you can add them as an exemption on your tax forms. If not, you have two possible avenues:

  • Multiple Support – If more than one person is supporting the elderly relative and the group covers more than 50% of the costs, one of you can claim your elderly relative as a dependent if they contribute at least 10% of the support. The others must sign a form agreeing not to also claim the relative as a dependent for that year.
  • Itemized Medical Expenses – You can still deduct medical and dental expenses even when your elderly relative is not a dependent if all other criteria but the income requirement is met. There is a large list of potential medical expenses, including insurance premiums and elements of nursing and long-term care. Consult IRS Publication 502, “Medical and Dental Expenses,” to see what qualifies.You can only deduct these expenses if the costs exceed 10% of your Adjusted Gross Income (AGI), or 7.5% of your AGI if you or your spouse were 65 years or older in 2016.

The dependent care credit allows tax breaks on home care and elder care costs that are necessary for you and your spouse to be able to work. The credit covers up to 35% of expenses with a $3,000 expense limit (thus $1,050 maximum credit). It can cover expenses allowing you to look for work, but to claim the credit you will need to have earned income during the year (this also applies to your spouse).
These expenses cannot be devoted to both medical care deductions and the Dependent Care Credit; however, you can devote home care costs toward the Dependent Care credit and other medical expenses toward the medical care deductions. Without the home care costs included in medical deductions, you may not reach the 10% criteria. Do the math to see which approach works best for you.
Elder-care situations can be complex, and it is usually wise to consult with a tax professional. With some assistance, you can find the best path to help you simultaneously care for your elderly relative and save money – a win-win situation.
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Tax Benefits of Caregiving of Aging Relative

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Taxes

IRS Tips for End of Year Giving

by Jeff Dailey
written by Jeff Dailey

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following: IRS Tips for End of Year Giving
Special Tax-Free Charitable Distributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2013, offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income — resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.
Rules for Charitable Contributions of Clothing and Household Items
To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
Donors must get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Reminders
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2013 count for 2013. This is true even if the credit card bill isn’t paid until 2014. Also, checks count for 2013 as long as they are mailed in 2013.
  • Check that the organization is eligible. Only donations to eligible organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
  • For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2013 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
  • If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
  • And, as always it’s important to keep good records and receipts.

IRS.gov has Additional information on charitable giving.

IRS Tips for End of Year Giving

IRS Tips for End of Year Giving IRS Tips for End of Year Giving IRS Tips for End of Year Giving IRS Tips for End of Year Giving

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Five Tips to Increase Your Federal Refund
Taxes

Five Tips to Increase Your Federal Refund

by Kimberly Johnson
written by Kimberly Johnson

Five Tips to Increase Your Federal Refund

Five Tips to Increase Your Federal RefundDozens of new tax laws could impact your 2009 federal taxes. Experts recommend taking extra time and care with this year’s return so you don’t miss out on any tax breaks.
 
TaxACT suggests these five easy ways to maximize your federal refund:

  1. Get organized. Gather your tax documents and organize by category. Locate records related to events including unemployment, college, new vehicles, having or adopting children, buying a house, moving and changing jobs. New tax laws may give you bigger breaks for those events.
  2. Contribute to your traditional IRA. If you were under 70-1/2 years of age at the end of 2009, contributing to your traditional IRA through April 15, 2010, can lower your 2009 tax bill. You and your spouse can contribute up to $5,000 each ($6,000 if age 50 or older at the end of 2009). Depending on your filing status, modified adjusted gross income and whether you or your spouse were covered by a retirement plan, your deduction may be limited.
  3. Use tax preparation software. Free and low-cost solutions like TaxACT guide you through the new credits, deductions and tax laws. They also do the math, help find missing information and identify potential errors. TaxACT Free Federal Edition allows everyone to prepare and e-file for free — regardless of income, age, state of residence and military status. TaxACT also includes a maximum-refund guarantee and all e-fileable forms for simple and complex returns.
  4. Consider itemizing. The standard deduction for 2009 is $5,700 for individual or married filing separately returns, $11,400 for joint returns or qualifying widow(er) returns and $8,350 for head-of-household returns. If your eligible deductions exceed the standard deduction amount, you’re likely better off itemizing. Software like TaxACT will identify your best option after you enter your deductions.
  5. File and pay as much as possible by April 15. Even if you can’t pay your entire tax bill by the deadline, file early and schedule payment any time before April 15 (June 15 for taxpayers who qualify as “out of the country”) to avoid penalties and interest. If you need a six-month extension (four months if “out of the country”), Form 4868 is due by April 15 and will extend your filing deadline to October 15, 2010. Remember, an extension to file is not an extension to pay.

This is not the year to procrastinate, especially if you’re getting a refund. You could have your refund in as few as eight days by e-filing and selecting direct deposit. The exception is taxpayers claiming the first-time homebuyer credit. The IRS requires that a copy of your settlement statement be mailed with your return (to prevent fraud), and the IRS likely won’t start issuing those refunds until the end of March.
Provided by: NewsUSA

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